Credit Score Boost at Renewal Can Save Thousands

Most borrowers inherently know that having a better credit score means you have access to better mortgage rates.

In case you’re wondering just how much better, I’d like to share the story of a pair of clients I had who, with a little help, were able to boost their credit score before their mortgage renewal and ended up saving thousands. Here’s their story…

In 2015, Oshawa homeowners Edgar and Sue reached a point where they could no longer meet their monthly financial obligations. They chose to enter into a five-year consumer proposal.

All their unsecured debt was cut in half to $48,000 and combined to a single interest-free monthly payment of $800 for a five-year term.

Three years later, by the spring of 2018, their situation had improved enough and they wanted to speed their way back to normal credit status. Their home had gone up in value and they were able to refinance their mortgage, improve their cash flow and used the additional proceeds to pay off their consumer proposal.

As their mortgage broker at the time, I arranged this new first mortgage with a well-known “B lender.” They got a $450,000 mortgage at 4.99% with a 30-year amortization—a reasonable outcome, all things considered.

No matter how long you’ve been with your Big-6 bank, they’re not going to give you a mortgage to pay off your consumer proposal early. For this, you will need to work with an alternative or private lender.

Fast-forward to March 2019

With almost a full year of being model borrowers, Edgar figured their long-time bank would now welcome them back with open arms.

The couple drove down to their local branch and submitted an application. They wanted to get everything in place before their pending renewal date of May 1, 2019.

To their surprise, the bank replied with a firm decline, citing their poor credit histories.

Edgar called me and asked for help. Meanwhile, he had received a renewal offer from their “B lender,” but he was not happy with the offer, which was another 24 months at 5.69% or 12 months at 5.35%.

Edgar did not understand why—one year after they completed their proposals—his mortgage rate would be higher now than it was when they were still paying their proposals.

With their consent I contacted the lender’s renewal department. Here’s the response:

Hi Ross,

I understand you were asking for a lower rate for these clients as they have 35% equity in their home and are pretty solid clients.

Although this is true, I am not sure if you are aware, but Sue has a very weak credit score (560) which impacted the rates these clients qualify for here. Furthermore, management already repriced the deal in between both clients’ credit scores due to the clients having good repayment with us.

Unfortunately, my hands are tied in regards to reducing the rates by any significant amount unless Sue can re-pull her credit and show a score of over 620.

Well, at least now I knew the problem was with their credit scores. With their consent, I pulled their credit scores and found Sue’s was in fact 590 and Edgar’s was slightly better at 623.

Time for Credit Repair

I reviewed their reports carefully, looking for the underlying reasons for the low scores.

They each had new credit cards, which was good, but all of them were very close to maxed out, which was bad. Had there been enough time, I would have recommended reducing these balances as much as possible, and the resulting score bump would have certainly helped with their renewal.

But I also noticed several reporting errors in their reports. In Sue’s case, I found seven different errors. The biggest being a credit card balance showing of $20,000, which in fact should have been zero since it was included in the consumer proposal filed in 2015.

The report also showed this facility as “written off.” We requested the wording be changed to “included in consumer proposal.”

Edgar’s report was a bit cleaner, but I still spotted five reporting errors.

I prepped an investigation package for each of them and emailed the packages to Equifax. I received a call from their investigation department the next day advising me all the corrections had been made.

We pulled their credit history again right away—Equifax assured us that two such inquiries within 30 days count as one, in terms of the impact on the score.

Even though their credit card balances were almost maxed out, Edgar’s score nevertheless increased overnight to 723 from 626, and Sue had climbed all the way up to 701 from 590!

I sent the new reports to their renewing mortgage lender, and true to their word they reduced their renewal rates by 0.40% and 0.25%, respectively. This was good news for the couple, considering it was still only one year since they had completed their proposals. And the rate reduction would have saved roughly $2,600 if they had taken the two-year offer.

That would be a happy ending in and of itself. But this story gets even better.

With both scores now over 700, and with 35% equity in their home, I knew it was possible some balance sheet lenders might find this file attractive now, allowing the couple to possibly qualify for an even better rate.

They returned to the same bank branch that just one week earlier had declined their application.

This time, however, they were approved for a 5-year fixed mortgage at 3.17%, with no fees of any kind. That really trumps their one-year renewal offer of 5.15%.

The savings they will enjoy amount to roughly $500 per month. That’s $6,000 in the first year alone!

What are the takeaways from this couple’s story?

In my experience, the majority of credit reports following a consumer proposal or personal bankruptcy are marred with reporting errors that impact your score, and consequently the mortgage rates and terms you will be offered.

If you are with a private or alternative lender and coming up to your renewal date, the higher your credit score the better.

At least three months before your renewal date, make sure to access your credit report. With Equifax, for example, you can currently get one month of free monitoring, allowing you to access your report as often as you wish during that time. I like doing it this way because these are “soft inquiries” that don’t impact your credit score.

If you see there are reporting errors, or if the balances being reported seem uncomfortably high, you have time to fix them. It could very much be worth your while. If you have the time and skills to request the fixes, you can reach out to Equifax and TransUnion Canada directly.

Alternatively, you can seek out professional service providers who understand the intricacies of credit reporting and scoring and who can often get it done for you in a matter of days.

Either way, ridding your credit report of the errors is critical to restoring your credit health and securing the best possible terms for your mortgage renewal.

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As well as being an accomplished mortgage agent with Concierge Mortgage Group, Ross Taylor is a licensed insolvency counsellor. Over the past 15 years, he has personally negotiated the terms of hundreds of personal bankruptcies and consumer proposals. He has also published extensively at www.askross.ca

2 Responses

A leopard does not change it’s spots. In many decades of lending, people like Sue and Edgar are always on the list of high possibility to re-offend regardless of improved credit scores. I have seen this pattern many many times. All that was done here was poor underwriting demonstrated by not doing sufficient research.

It is true that not everyone learns their lesson after going through a life changing event such as a consumer proposal or personal bankruptcy. But the system today is designed to give people a second chance, and that is what is happening here for Edgar and Sue.

If they turn out to be repeat offenders, they will find the water is not nearly so warm and inviting next time around.